For many, a less enjoyable part of entrepreneurship: you have to pay value-added tax (VAT) on your sales. You report this in your VAT declarations to the tax authorities. This also applies if you want to sell through Shopify. Although it is administratively difficult, it is important to know how it works (for example, to prevent fines!). We explain it to you in this article!
Setting up VAT on Shopify
Before you start selling through Shopify, you need to know how much tax you will be charging. Are you planning to sell in multiple EU countries or keep stock there? Then you probably need to apply for a VAT number in those countries. Once you have a VAT number, you can set up your Shopify account to use the correct VAT rates for your products. You do this as follows:
- Go to Settings in the Shopify management center, then to Customs and taxes.
- Select “European Union”.
- Select “VAT on sales within the EU” and then “Add country”.
- Select the country where you are registered as a business.
- Enter your VAT identification number and select Add country.
- If you want to add multiple numbers, select “Collect VAT”. This step is optional!
Did you make a mistake, or want to delete one? Click on the 3 dots next to the name and account number of the country under “Tax registrations”.
European VAT settings within Shopify
Within Shopify, you can additionally specify how you declare your VAT. There are three options for this:
- One Stop Shop registration: for if you want to declare in one go for all the countries you sell into. You can still choose this option if you send products from outside the EU to an EU country, and charge VAT on orders up to 150 euros. If this applies to you, you can supplement your settings with your Import One Stop Shop (IOSS) number.
- Country-specific registration: for if you want to file a VAT registration with the local tax authorities for each EU country.
- Micro-enterprise exemption: this option is for the smaller entrepreneur, who stays below the European threshold amount of 10,000 euros (for distance sales within the EU). These entrepreneurs can continue to charge Dutch VAT.
VAT calculation service from Shopify
Shopify itself (unfortunately) doesn’t do VAT returns for you. Although there is no service for that, you can have Shopify do some VAT calculations. That saves you some puzzle. For these calculations, Shopify uses standard VAT rates. These are updated regularly, but always check yourself if they are correct. If the rate isn’t right after all, you can always adjust it.
Want to change the settings for these calculations? You can do that through the administration center. Go to Customs Duties and Taxes, and then select which options apply to you under Tax settings.
Also good to know: Shopify rounds up VAT at the goods/products line level. The total tax value is determined by applying the tax rate to each line in the order, rounding the result, and then summing up these subtotals to obtain the overall value of the order.
Filing VAT returns on sales via Shopify
It is nice that Shopify does some calculations for you, based on your way of declaring VAT. But you still have to file your own VAT return! As described above, this can be done in several ways. We will describe the two most common ones:
- The first way is to declare your tax with the local authorities (the “country-specific registration”). Suppose you sell to Italian, French and Spanish customers: then you have to have a VAT number with the tax authorities of each of these countries as well as periodically declare VAT. Read more about it in this article.
- The second option is VAT declaration via the One Stop Shop. You qualify for this if you sell more than 10,000 euros annually across the border. You then do not have to file a declaration with different local tax authorities, but you have to file a quarterly declaration with the tax authority of the country in which you are located. Read more about it here.
Display prices including VAT
Then there is another option that many buyers can appreciate. You can set up a foreign buyer to see the sales price including the local VAT rate. That way your customers won’t be surprised at checkout.
You can set this up within your Shopify account by selecting the buyer’s country under ‘tax settings’, ‘include tax’. Moreover, you will find an overview of all VAT rates per EU country here, should you still have doubts about the correct rate.
Another option for this is to use a geolocation app (see Shopify’s app store). When a customer browses your webshop, they will be asked to verify their location. Sales prices will be adjusted accordingly with the correct VAT rate!
Do you want an overview of all your VAT?
Automate your VAT process with Staxxer. Whether you need a VAT number or a VAT return: our Staxxers are here to help. Then you can focus on growing your business! Our Staxxer software gives you 100% insight into your VAT wherever you are. So you always know how much VAT you have to pay where, and when. Do you sell through multiple marketplaces? Besides Shopify, Staxxer can also be linked to Amazon and Bol.com. Schedule a free consultation to see which solution suits you best.